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IAC chairman Barry Diller introduces Aereo.

Tap water is free, yet Americans spend billions of dollars every year for the convenience of drinking the same thing out of bottles. The founders of a new digital video service are betting the same logic can be applied to another free commodity: broadcast TV.

Aereo, as the new service is called, relies on arrays of postage-stamp-sized antennas to grab TV signals from the air and relay them to the internet cloud, where users can watch them live or record them for later viewing. The service goes live today in limited, invitation-only form, with a subscription costing $12 per month. One month from now, it will open up to the general public, although it will only be available in New York to start with. Aereo is backed by $25 million in funding from investors including IAC, whose chairman, Barry Diller, sits on its board.

"Our mission, very simply, is to allow consumers to access the signals of television and take it wherever they want," CEO Chet Kanojia said at a launch event Tuesday.

Of course, that's a mission lots of technology companies are on right now, from Google and Apple on down.
The problem they've run into is that media companies are scared to jeopardize the fees they get from cable providers by licensing their content to so-called over-the-top service providers like Apple TV, Netflix or Roku.

What Aereo is hoping, essentially, is that it can build up enough of a paying user base just by offering on-demand broadcast TV content to give it the leverage it needs to make media companies budge. "We think once that audience grows...there will be an opportunity for others to talk to that audience," says Kanojia, noting that 45 of the 200 highest-rated TV shows are still on broadcast networks.

In the meantime, what Aereo offers is an explicit tradeoff: You can't watch "Pawn Stars" or "Breaking Bad," but you can watch "New Girl" the morning after it comes out, on your iPad, and skip the commercials. To do that on Hulu, you need a premium subscription. And only Aereo gives access to live events like sports matches.

The reason Aereo thinks it's legally in the clear is that it's careful to provide each customer with his or her own antenna rather than sharing them. The monthly fee it charges is, in effect, a rental fee for the use of that antenna. While that should, in theory, allow each use of Aereo to qualify as a "consumer controlled private exhibition," Kanojia said he wouldn't be surprised if some media company decides to test the law. "I'm sure there'll be challenges," he said. "We'll deal with it."

The model was good enough for Diller, anyway. "When [Kanojia] came in and I heard the idea, I said, 'There must be something wrong with this,'" he recalled. "With each barrier we pass, I get more excited about it."